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Italy’s Credit cooperative reforms leave a “way out” that could undermine their effect

by Laura Serafini

The self-reform of Italy’s 364 small cooperative or mutual banks could in the short term become a reality, with the creation of a single new holding with €20 billion of capitalization.

The Cabinet on Wednesday confirmed the decision of setting up a single holding, as indicated in the initial draft of the law.

The creation of a single group with roles of control, supervision, and strategy is aimed at achieving a healthy management of the system, more efficiencies, lower costs and therefore more competitiveness.

The government has however opened to a “way out” for banks that don’t want to join the new holding, limiting its impact. Banks that don’t want to become part of the holding company can decide to transform their statutes into a joint stock company, redeeming their assets and paying a 20% tax. However, only banks with more than €200 million in assets are allowed to decide not to join the holding.

If the way-out option does not undermine the project, the reform approved yesterday is a revolution for the cooperative credit sector, which will now need to be implemented through regulation by the Bank of Italy and through a series of steps and agreements that banks, two industrial holdings, 15 local federations and national association Federcasse must reach, especially in terms of governance.

The role of the several parties, supervision and banks was already at an advanced stage and has been there since last autumn, when consensus of a good part of the system and regulators was forming over how to change cooperative credit.

The new combined group would be the most capitalized in Italy, with assets worth €19/20 billion and would see the light already in the final quarter of the year. A draft of the new cohesion contract, with 40 articles, is ready.

After the approval of the decree, the system of cooperative banks is ready to set up the first vehicle that would constitute the embryo of the new group.

It should be created from the integration of two industrial groups, which already have a banking licence - Iccrea holding and Cassa Centrale Banca - which will be diluted into the new controlling vehicle.

The two industrial realities which will merge have combined capitalization of around €1.7 billion.

The holding will be a joint-stock company and will have a banking licence.

Capital is majority-held by the cooperative banks, therefore is controlled in terms of equity by the same banks that the holding is called to supervise and control, while social capital cannot be below €1 billion.

Cooperative banks will join the holding through a cohesion contract that sets the rules for the direction and coordination of the holding.

The holding will propose strategies, direction and coordination, based on the risk level of participating banks, and will have the power to appoint or reject the appointment of one or more board members as far as the majority of banks is represented.

The contract foresees the guarantee of bonds issued by the holding and bank members: it's the mechanism that allows to combine the capital of the banks.